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For banks investing in expensive image-scanning ATMs to encourage deposits, a big question is whether fraud at existing ATMs will curtail adoption. In 2007, 19 percent of debit card fraud occurred at the ATM, accounting for 25 percent of lost dollars, according to a recent Oliver Wyman study, commissioned by PULSE Networks. Every single one of the 62 financial institutions surveyed stated that they "had potentially compromised cards from data breaches in 2007."

Couple those stats with high profile breaches and the ATM environment can seem decidedly unsafe to the average retail bank customer. Consider the story that broke in June that two Brooklyn men allegedly hacked into a Citibank server that processes ATM withdrawals and managed to steal PINs and make $750,000 of cash withdrawals from ATMs around New York City. It may have been the first time PINs were actually stolen from a bank instead of being taken from consumers through phishing attacks.

This sort of vulnerability does not actually threaten the business case for image-scanning ATMs, which are intended to make more efficient the taking deposits, not the dispensing of cash. However, for consumers such stories could cast a pall over the entire channel.

"Consumers are getting less trusting, not more trusting, even though it's not rational, frankly. ...I'm always telling my friends that it's safer to put your deposits in an ATM," says Gartner analyst Avivah Litan. "People are nervous about putting their deposits in an ATM and they are going to get more nervous, not less nervous."

It costs about $30,000 per image-scanning ATM, or $10,000 more than a typical ATM, so the investment in next generation machines is not insignificant. Perhaps not surprising then that less than 20 percent of retail and commercial banks have, or are piloting, an image-ATM solution, according to recent Celent research.

However, Celent senior analyst Bob Meara argues that the challenge around adoption of image-scanning ATMs is less about overcoming fraud concerns, and more about building confidence that consumers' checks or cash won't be lost. "The consumer experience with putting cash or checks in an envelope has really been an unsatisfying one for consumers," says Meara, because the customer tends to worry the envelope will be misplaced or lost.

"What we're seeing with image ATMs is that simply by making the user experience a more [confident-building experience], deposits as a percentage of total ATM transactions in image ATMs are two to three times that of envelope ATMs," he says. "That, to me, suggests there is not a fraud concern there at all."

JPMorgan Chase spokesperson Thomas Kelly says that the institution is "on target" to have 900 image-scanning ATMs deployed through the first half of this year and that by 2010 all 5,000 of the bank's deposit-taking ATMs will be equipped with this new capability.

"One of the advantages is that they get on their receipt an image of the check," Kelly says. "In some of the branches [with image-ATMs] we saw ATM deposits increase more than 50 percent because the anxiousness factor, I guess you can call it, was less [compared to the using an envelope]."

Kelly adds that education at the bank's branches has been effective. "We found that there were already a lot of people doing ATM deposits, but a much larger group of customers who were taking money out, but no way were they going to put checks in," Kelly says. "[Education] has made a big difference. By having our bankers at the machines as we introduce them, [the customer tries] it once and says, 'Hey, this works great.'"

Education is the key to adoption, agrees Kevin Byrne, a senior compliance consultant for technology-consulting firm Wolters Kluwer.

"Banks' biggest struggle is to get customers to embrace an ATM and to understand that there is so much technology and so much security embedded within an ATM transaction that the transaction is probably more secure than an over-the-counter transaction with a live employee," Byrne says.

"It's an education curve," he continues. "Most of the general public is a wee-bit leery, but if they were shown and they understand how safe that transaction can be, I think banks will win those customers over and get more and more people into doing this."

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